Essentials of A Valid Contract in Conflict of Laws

Institute of Foreign and Comparative Law
Private international law rules relating to the validity of international sales contracts
Author(s): Sonia Viejobueno
Source: The Comparative and International Law Journal of Southern Africa, Vol. 26, No. 2
(JULY 1993), pp. 172-210
Published by: Institute of Foreign and Comparative Law
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Prvate international law rules relating

to the validity of international sales
contracts
Sonia Viejobueno*
Researcher, Institute of Foreign and Comparative Law
University of South Africa
INTRODUCTION
International commerce based on freely negotiated contracts is the driv
of international economic cooperation and prosperity. Ours is an

precedented economic activity: new forms of exchange of goods, se
technology, together with corresponding international banking arra
dictate the pattern of modern commercial transactions.
International trade involves complications not found in purely dom
actions. Apart from the diversity to be found in national laws governin
tional commercial contracts, differences in language, climate and s
cal, and business customs constitute further barriers to international tra
In order to minimise these obstacles a degree of uniformity in the law

tice of international commercial contracts is needed for the proper fun
and further development of international commerce.1
At the heart of international trade is the international sales contract, a

agreement between parties containing rules which regulate the transact
create rights and obligations. The terms of the contract are arrived at af
ations, during which the parties assess the risks involved and decide on
of rules best suited to their particular needs. In this process, partie

enjoy wide autonomy to select a law to govern their transaction. Pa
my in contractual relations is of primary importance in the context of

tional commercial transactions: it promotes legal certainty by protecting
mate expectations of parties to such contracts.2
'Abogada (UBA Argentina).

'n Horn 'Uniformity and diversity in the law of international commmercial
in The transnational law of international commercial transactions, studies i
national economic law vol 2 Horn & Schmitthof (eds) (1982) 4.
2B Shaw The structure of the legal environment (2ed 1991) 653.
Validity of international sales contracts
173
An international contract must be governed by a given system of law. The pur

pose of private international law rules is to determine which law applies to con
tracts containing foreign elements. Private international law is part of the inter
nal law of the state, and its rules are therefore restricted in their application to
the territory of the state where they have been promulgated. Consequently, it
is possible that a factual situation containing foreign elements may be decided

differently by courts sitting in different states.3
The inconvenience arising out of the national character of choice-of-law rules

may be overcome in two ways. It is possible to harmonise private international
law rules so that no matter which forum is deciding a dispute, the uniform choice
of law will point to the same country's substantive law. An example of this tech
nique in the subject under consideration is the two Hague Conventions on the
Law Applicable to International Sale of Goods4, and the EC Rome Convention
on the Law Applicable to Contractual Obligations.5
The second method consists in unifying the substantive rules themselves, so that
the same law will be applied by courts no matter where the dispute is brought
for litigation. An example of this is the United Nations Convention on Interna
3G Parra Aranguren 'General course on private international law' 210 Hague Recueil (1988)
III 39.
**The Hague Conference on Private International Law adopted on 15 June 1955 a Con
vention on the Law Applicable to International Sale of Goods (hereinafter the 1955 Hague
Sales Convention). This convention entered into force on 3 May 1964 for nine coun
tries (Belgium, Denmark, Finland, France, Italy, Norway, Sweden, Switzerland and Niger).
For the text of the convention, see CJ Cheng (ed) Basic documents on international
trade law (1986) 597-600. After several years of preparation, The Hague Conference
on Private International Law met in Extraordinary Session in October 1985 to finalise
the Convention on the Law Applicable to the International Sale of Goods (hereinafter
the 1985 Hague Sales Convention). This convention is intended to replace the 1955 Con
vention on the same subject, which was negotiated at a time when the Hague Confer
ence was dominated by western European continental countries. In contrast, the ex
traordinary session of 1985 was attended by 64 delegations from all parts of the world,
including developing countries, industrialised, civil and common law countries, as well
as several former European socialist countries. This convention has not yet entered into
force. For the text of the Convention see (1985) 24 international Legal Materials 1575.
'Convention on the Law Applicable to Contractual Obligations (opened for signature in
Rome on 19 June, 1980) (hereinafter the Rome Convention) reprinted in R Plender The
European Contracts Convention (1991) 199-238. The convention is the product of the
efforts of member states of the European Economic Community (EEC) to harmonise
rules of law most closely involved in the proper functioning of the common market.
Although only member states of the EEC may sign the convention, its rules have an
international scope, in the sense that the convention replaces the choice-of-law rules
of the contracting states whenever the issue arises in their courts, even in the absence
of any connection with the community; idem 1. The convention came into force (in
relation to the United Kingdom) on 1 April 1991, following the ratification of seven states.
The United Kingdom acceded to the convention in terms of the Contracts (Applicable
Law) Act 1990. Several other contracting states had already adopted legislation to im
plement the terms of the convention in advance to its entry into force at the interna
tional level.
XXVI CILSA 1993
174
tional Sale of Goods,6 which establishes a uniform set of rules to govern inter
national sales between parties with places of business in different contracting
states.
In trying to achieve the harmonisation of the law applicable to internation
mercial sales, these two methods complement one another.7
Scope of the article

The present article will consider the choice-of-law rules which apply to aspects
normally referred to as the material and formal requirements for the validity of
contracts, ie formalities, contractual capacity, existence of agreement and ille

gality. For this purpose, reference will be made to the method of ascertaining
the proper law of an international sales contract in English and South African
law, in the 1980 Rome Convention and in the Hague Conventions of 1955 and
1985. The scope of the proper law in these systems will then be examined to
determine which law governs the particular aspects identified as relating to the
validity of international sales contracts.
International sales
Although the demarcation between international and domestic sale
uisite for the operation of private international law rules, no clear de

ists as to when a sale is international.8 Apart from the question of a
ing problems of private international law, the practical importance o
tinction rests on the fact that, in the interests of international trade
mally allow the parties wide freedom to select the law governing inte
commercial contracts. In fact, the principle of party autonomy is
cepted in international situations that it 'must be said to be a general
of law recognised by civilized nations'.9
6United Nations Convention on Contracts for the International Sale of Goo

Vienna on 11 April 1980 (hereinafter the 1980 UN Sales Convention). The
the convention is extensive. For major commentaries on the sales law, see
Uniform law for international sales (2ed 1991) and CM Bianca & MJ Bonel
tary on the international sales law (1987) with further references.
7P Winship 'Private international law and the UN Sales Convention' (198
International Law Journal 487-88.
8JW Westenberg 'The quest for unification' in Forty years on: the evolutio
private international law in Europe (1990) 202.
90 Lando 'The conflict of laws of contracts' 189 (1984) Hague Recueil 284-2
tion of the existence of limits to such a choice, in the form of mandatory
apply irrespective of the law chosen, is considered later. However, it is po
ticipate here that many of these rules apply to non-commercial contracts
sumer sales, employment or insurance contracts, where parties are frequen
equal position with regard to their bargaining power. It is in the general in
society to protect weaker parties against possible abuses of dominant parti
tual situations; this explains the existence of special mandatory rules in thi
in the typical international commercial situation (such as export-import,
cy, distribution agreements and the like) the basic agreement is negotiated an
between business corporations which are - at least theoretically - in the sam
175
In general, it seems to be fairly widely accepted that an international situation

exists whenever the parties to the contract have their places of business in differ
ent states, and where goods, services, or payment cross international borders.10
Under uniform substantive sales law, for example, the fulfilment of the neces
sary formal requirements set out in the relevant convention will invoke the ap
plication of its provisions. The 1980 UN Sales Convention applies to contracts

of sale between parties who have their place of business in different states,11
thus adopting a geographical criterion. Similarly, the two Uniform Laws on In
ternational Sales adopted at The Hague in 196412 apply to contracts of sale en
tered into by parties whose places of business are in different states, but they
also require that the goods be transported over national borders, or that the per
formance of the contract is effected across national boundaries, or that the offer
and acceptance be effected in the territory of different states.13
Neither of the two Hague Sales Conventions defines international sales. The 1955
Hague Sales Convention applies to 'international sales of goods'14. Although the
convention is silent on what must be understood under international sale, it nega
tively provides that the mere declaration of the parties relative to the applica
tion of a foreign law or to the jurisdiction of a judge or arbitrator does not turn
an otherwise domestic contract into an international one.15 Conversely, the
position, and where legal certainty with regard to the legal environment of the contract
is of primary importance. In these 'free' commercial contracts, the interests of interna
tional trade are best served by allowing the parties to select the system of law best suit
ed to their needs, even if the chosen law lacks any apparent connection with the trans
action; idem 301.
wIdem 286.
11 Art 1. The law applies when the states concerned are contracting states or when the
rules of private international law lead to the application of the law of a contracting state.
Neither the nationality of the parties nor the civil or commercial character of the parties
or of the contract is to be taken into consideration in determining the application of

the convention.
12The Uniform Laws on International Sales were the subject-matter of two conventi
adopted at The Hague in 1964, one relating to the Uniform Law on the Internati
Sale of Goods (ULIS) and the other relating to the Uniform Law on the Formation
Contracts for the International Sale of Goods (ULF) (for the text of the conventions
Honnold n6 671-691). The conventions were ratified by nine countries, among th
the United Kingdom, but failed to attract widespread support outside western Euro
In England, the conventions were adopted in terms of the Uniform Laws on Inte
tional Sales Act 1967 (see RH Graveson Uniform Laws on International Sales Act 1
(1968)). The United Kingdom's ratification, however, was subject to the reservation t
the Uniform Laws would only be applicable to contracts in which the parties chose t
as the applicable law. As a result of this, in practice, little notice was taken of ULIS
ULF in the United Kingdom, and there are no reported cases in either English or S
tish courts involving their application. The 1980 UN Convention is intended to su
sede the 1964 Uniform Laws. See B Nicholas 'The Vienna Convention on International
Sales Law' (1989) 105 The Law Quarterly Review 201-202 and also JD Feltham 'The UN
Convention on Contracts for the International Sale of Goods' 1981 Journal of Business
Law 346.
13Art 1 ULIS and ULF.

14Art 1(1).
15Art 1(4).
176
XXVI CILSA 1993
1985 Hague Sales Convention applies to contracts of sale between parties having
their places of business in different states and in all other cases involving a choice
between the laws of different countries, unless such a choice arises solely from
a stipulation by the parties as to the applicable law, even if accompanied by a
choice of court or arbitration.16
Lastly, article 1 of the Rome Convention states that the rules of this Convention
shall apply to contractual obligations in any situation involving a choice between
the laws of different countries'. This situation, however, need not necessarily
be one with truly international elements. According to the Official Report of the
Convention, its rules apply in 'all cases where the dispute would give rise to a
conflict between two or more legal systems', even if 'those systems coexist with
in one State'.17 Thus, the question whether a contract is governed by English

or Scots law would fall within the ambit of the convention, as would a case in
volving a choice of law between different states of the American Union, should
it come before the courts of a member state in which the convention is in
force.18 Similarly, once an otherwise purely domestic contract contains a choi
of-law clause, this convention comes into operation, since the issue has ari
as to whether the lex fori or the chosen law applies.19
lArt 1. This convention, unlike the 1955 Hague Sales Convention, does not necessa
require the contract to be international. According to the strict letter of the conven
it will apply in situations where the contract involves a choice of law, although the
ties have their place of business in the same country. Lando states the example of a meet
in San Francisco between two Norwegian shipowners, whereby they agree to the
of a vessel to run between American ports. It would also apply when the parties ha
used a foreign standard form contract or when imported goods have been resold un
the same conditions under which they were bought. For a criticism of the conventio
sphere of application rules, see O Lando 'The 1985 Hague Convention on the Law
plicable to Sales' (1987) 51 RabelsZ 62-63.
i7M Giuliano and P Lagarde Report on the Convention on the Law Applicable to Cont
tual Obligations (hereinafter the Giuliano-Lagarde Report) reprinted in Plender n 5 (p
A5.10) 251.
18When a state comprises more than one territorial unit, each of which maintains its
rules governing contractual obligations - as is the case in the United Kingdom - e
unit is in principle to be considered as a country for the purposes of the conventio
Under art 19(2), however, such a state may refrain from applying the convention to
flicts solely between the laws of such units. By section 2(3) of the Contracts (Applic
Law) Act 1990, the Rome Convention is to be applied in case of conflict between
laws of different parts of the United Kingdom. Moreover, art 2 of the convention st
that any law specified by the rules of the convention shall be applied whether or n
it is the law of a contracting state. This means that the convention is world-wide in
fect (see n5) and applies in all situations where a conflict of laws appears, irrespect
of the existence of an EC connection.
19PM North 'The EEC Convention on the Law Applicable to Contractual Obligatio
history and main features' in PM North (ed) Contract conflicts The EEC Convent
the Law Applicable to Contractual Obligations: A comparative study (1982) 9. S
limitation on this freedom is provided by art 3(3), in terms of which the choice
foreign law, whether or not accompanied by a choice of a foreign tribunal, shal
prejudice the application of the mandatory rules of a country where all the othe
ments relevant to the situation at the time of the choice are connected with that coun
try. See also infra.
177
THE APPLICABLE LAW
A contract is created and exists within a given system of law which

obligations assumed by the parties.20 This view was asserted in the E
Amin Rasheed Shipping Corporation v Kuwait Insurance Co21 w

said that
Contracts are incapable of existing in a legal vacuum. They are mere pieces of paper
devoid of all legal effect unless they are made by reference to some system of pri
vate law which defines the obligations assumed by the parties to the contract by
their use of particular forms or words and prescribes the remedies enforceable in
a court of justice for failure to perform any of those obligations; and this must be
so however widespread geographically the use of a contract employing a particular
form of words to express the obligations assumed by the parties may be.22
Dlocalisation of contracts and the applicable law

It has been argued that the traditional choice-of-law techniques are not well
designed for application to problems which arise in the complex and rapidly de
veloping field of international trade and investment, in relation to transactions
such as international sales, transfers of technology, trade financing, insurance
transactions and others.23 In these areas, the prominent role played by interna
tional arbitration as a means of international commercial adjudication and the

emergence of a new international law merchant (lex mercatoria) as an autono
mous legal system of a universal character, form the main features in the new
trend towards 'dlocalisation' of international contracts.24 The dlocalisation of
contracts finds its ultimate expression in the widespread use of model contracts,
standard clauses, general terms of delivery, commercial customs and trade usages,
and the ever-growing use of arbitration clauses in international contracts.25 In
these cases, the view has been expressed that it is not possible to localise 'inter
national' situations within the framework of a single state and that the only solu
tion is to formulate a regime which is transnational or universal in its applica

tion. Moreover, it is argued that the reference to standard forms and usages, which
usually provide for detailed and almost exhaustive rules governing the various
aspects of the transaction, create the so-called 'self-regulatory' contracts or con
tracts 'without law' where there is no apparent contact with a positive legal
system.26
20CF Forsyth Private international law (2ed 1990) 263.
211984 AC 50.
22Per Lord Diplock at 65.

23IFG Baxter 'International conflict of laws and international business' (1985) 34 Interna
tional and Comparative Law Quarterly 538.
24See for example C McLachlan 'The New Hague Sales Convention and the limits of the
choice of law process' ( 1986) 102 The Law Quarterly Review 591 -599 and also O Lando
'The lex mercatoria in international commercial arbitration' (1985) 34 International

and Comparative Law Quarterly 747-755.
25I Gal 'The commercial law of nations and the law of international trade' (1972) 6 Cor
nell International Law Journal 64-68.
MJ Bonnell 'The relevance of courses of dealing, usages and customs in the interpreta
tion of international commercial contracts' (1977) 1 New Directions in International
Trade Law 122-124.
XXVI CILSA 1993
178
As long as no dispute arises between the parties, commercial transactions are

conducted in such a way that states have no need to interfere. But there is at
least one instance where recourse to a national court is peremptory: the enforce
ment of an arbitral award where the defeated party refuses to abide by the find
ings. The question of whether and to what extent arbitral awards will be enforced,
for example, must necessarily be answered with reference to a body of law that
renders them effective and enforceable. Arbitration cannot exist outside of a legal
system and therefore an agreement to arbitrate, the rules governing the arbitral
process and the arbitral award itself can be given effect only within some body
of law prescribing such effect.27 Moreover, upon deciding on the enforcement
of an arbitral award, a national court will not only revise the formal aspects of
the award but also the substantive aspects of the decision. In this regard, there
are several issues in commercial transactions that states tend to regulate in terms
of mandatory rules which limit the autonomy of the parties to these transactions.
Questions such as capacity of the parties, reality of consent, rules determining
minimum limits of liability or those designed to protect the weaker party, as well
as certain public law matters such as exchange control regulations and export
import tariffs, are normally considered and enforced by national courts.28
This suffices to demonstrate that the self-regulating power of the parties neces
sarily presupposes the existence of a legal system which governs the contract
and determines the extent of its obligations. This governing law must be deter
mined first, in order to establish the legal basis of the various rules, practices
and usages applicable to the typical transaction of international trade.29
This governing law is normally referred to as the proper law of the contract, an
expression taken from English law and subsequently adopted in South Africa.30
The expression 'proper law of a contract' serves to indicate the legal system which
is applicable to the contract as a whole. However ascertained, it consists of a

single legal system, either chosen by the parties or found to have the 'closest
and most real connection' with the contract. But not all aspects of the contract
are necessarily governed by one law. For instance, aspects such as whether an
agreement has been reached, whether the parties have capacity to contract or
whether the contract is formally valid, should be governed by the law to which
that aspect of the contract naturally belongs, ascertained objectively in the light
of all prevailing circumstances.31
Depeage
Under English law, and subject to certain exceptions, the formation and validity
of the contract, its interpretation and performance are governed by the proper
1 H Smit 'Proper choice of law and the lex mercatoria arbitralis' in TH Carbonneau (ed)
Lex mercatoria and arbitration (1990) 61.
28Bonnell n 26 122.
29 Idem.
30AB Edwards 'Some reflections on the reception of the "proper law" doctrine into South
African law' Huldigingsbundel Paul van Warmelo (1984) 38-67.

31Cheshire & North Private international law (lied 1987) 447-48.
179
law.32 Furthermore, it is up to the parties to agree that different aspects of the

contract shall be submitted to different laws, a practice known as 'dpeage' or
'splitting' of the contract.33 The Rome Convention provides in article 3(1) that
the parties may select the law applicable to the whole or part of the contract,
thus accepting that severable parts of the contract may be subject to different
governing laws. The Giuliano-Lagarde Report shows that, on considering whether
to allow dpeage, some delegates felt that the contract should in principle be
governed by one law, unless the contract consists in reality of several contracts
or parts which are separable and independent from each other, from the legal
and economic point of view.3'' This may apply to complex contracts contain
ing elements which may exist as separate contracts. For example, a contract which
is at the same time a sale of goods and a distributorship agreement may be sub
ject to the law of the seller with regard to the sales aspect and to the law of the
buyer (distributor) as regards the distributorship agreement. By stating that the
parties' choice of law may be limited to a part of the contract only, the 1985
Sales Convention also permits dpeage.35
Contractual dpeage allows parties to take full advantage of their autonomy

over the choice of law by identifying potential areas of dispute - such as con
tractual validity, interpretation, performance requirements, and so on - and sub
mitting them to the legal system which is best suited in the particular case.
However, implementation of contractual dpeage entails disadvantages. Parties
may have to expend time and effort to ascertain what their legal needs are and
which system best meets those needs. Furthermore, the application of multiple
systems of law to the same transaction may involve difficult questions of charac
terisation in order to determine which law governs a certain aspect of the con
tract. Perhaps, as a result of this, dpeage as part of an express choice-of-law

clause is not very common. Most choice-of-law clauses seem in practice to be
comprehensive ones, subjecting the contract to a single law.36
When there is no choice of law, the question arises whether it is possible for
a court faced with the task of determining the applicable law in the absence of
choice by the parties, to apply different laws to different issues in the dispute
between them. In the United States, for example, dpeage has been used fre
quently by the courts and is expressly recognised in the Second Restatement of
the Conflict of Laws.3" By providing that the rights and duties with respect to
an issue of the contract are determined by the law of the most significant rela
tionship, the Second Restatement stresses the relationship of aspects - and not
of the whole contract - with the local law of a country or state.38

In England, apart from aspects such as capacity, consent, formalities and possi
bly illegality, where the view prevails that these aspects must be considered
32Dicey & Morris The conflict of laws (lied 1987) 1163.
33Idem.
3-Report nl7 (para A5.26) 259-260.
3'Art 7.
36AL Diamond Harmonization of private international law' (1986) 199 Hague Recueil
259-260.
3"American Law Institute (ed) Restatement of the law Second. Conflict of laws (1971).
38Par 188.
XXVI CILSA 1993
180
separately, English courts will not 'split the contract readily and without good
reason', although 'there is no authority to the effect that there can be but one
proper law in respect of any given contract'.i9
In South Africa, the scission principle has been recognised and applied by the
courts on certain occasions, especially with regard to contracts where the par
ties had to fulfil their respective obligations in different places. In many such
cases the courts determined the parties' obligations by reference to their respec
tive lex loci solutionis.4 More recently, however, the position of the courts has
become blurred. In Improvair Cape (Pty) Ltd v Establissements Neu the feasi
bility of more than one legal system being applied to a single contract was re
jected by Grosskopf J, who stated that a contract is normally subject to a single
proper law, unless the parties have agreed otherwise." But in Laconian Mari
time Enterprises Ltd v Agromar Lineas Ltd*1 Booysen J reflected on the scis
sion principle in the following terms
If one accepts the approach that in the absence of super-law we are merely dealing
with conflicts between legal rules seen to be potentially applicable and not legal
systems or parts of legal systems, then scission is a necessary and welcome princi
ple. If not, one will always be faced with the fact that "counting" up contacts or
interests can never be a satisfactory way to decide legal issues and in some cases
could not possibly point to a single system of law.43
Similarly, there is no agreement among legal commentators on whether it is desira

ble or even possible to split a contract into different issues in order to determine
the law applicable to each of them.44 However, by considering all possible cir
cumstances involved in a contractual dispute, dpeage encourages result

selectivity in cases where there is no clear-cut solution to a given situation in
volving a conflict of laws problem.-*5 From this point of view, dpeage is a use
ful device a court can use to avoid potentially unjust results arising from a mechan
ical application of choice-of-law rules.

Party autonomy
Most legal systems and conventions dealing with international sales recognise
the freedom of parties to select a particular law as the proper law of the con
tract. Differences only exist in the limitations which parties are subjected to in
choosing the governing law. While some states allow an almost unrestricted free
dom, others limit this freedom, either by demanding a local contact with the
39Dicey & Morris n32 1162.
4Forsyth n 20 277 n 93 cites Standard Bank Ltd v Efroiken and Newman 1924 AD 171.
Here, De Villiers J approved of a dictum in an English case, Chatenay v Brazilian Sub
marine Telegraph Co 1891 1 QB 79 where dpeage was advocated in cases where
the contract is to be partly performed in a place other than the lex loci contractus.
411983 2 SA 138 (C) at 147B.

421986 3 SA 509 (D).
43At 529 D. But cf Forsyth n 20 at 278 n 96, where the author argues that because the
court referred to a conflict of 'applicable rules' and not of 'legal systems' those remarks
cannot be understood as supporting the scission principle.

44FK Juenger 'General course on private international law' (1985) 193 Hague Recueil 197.
""Idem.
181
chosen law or by excluding some questions which are governed by mandatory

rules of immediate application.46
In determining the obligations under a contract, English courts ascertain the
proper law by reference to the expression of intention of the parties that the
law of a certain country shall govern the contract.47 The same may be said to
be the position in South Africa.48
The principle of the autonomy of the parties to select the applicable law is of
fundamental importance in international commercial transactions. An express
choice of law may be instrumental in providing a greater ability to foresee results
and a better regulation of the contractual terms, adapted in accordance with the
peculiar nature of the contract and to the requirements of the particular trade
concerned. Therefore, upholding such choice of law promotes legal certainty.49
Moreover, in most cases the parties have creditable reasons for choosing a par
ticular law as the proper law of the contract, even in the absence of any appar
ent connection with the transaction. For example, the parties may be unable or
unwilling to reach an agreement as to the application of the laws of their respec
tive domiciles, and may therefore decide to submit the contract to the law of
a third country. It is also possible that they would like to select the same body
of rules previously applied in earlier transactions between them. Similarly, the
parties may wish to submit the contract to the law of the country which dominates
the market, or alternatively to a system of law particularly suited to the transac
tion in question.50
In the leading case Vita Food Products Inc v Unus Shipping Co Ltd31 Lord
Wright said, in answer to the argument that the choice of English law to govern
a bill of lading was not valid since the transaction had no connection with En
gland, that parties may reasonably desire that the 'familiar principles of English
law' should apply, and that it was important for the security of subsequent deal
ings that bills of lading were capable of being taken at their face value, thus em
phasising the importance of legal certainty resulting from the enforcement of
a choice-of-law clause.
The view was taken that commercial law and practice had developed more fully
in England than elsewhere, particularly in the field of maritime contracts. Th

fore, in concluding contracts of this type, it was reasonable for parties to sub
them to English commercial law as long as the choice of law was bona fide, leg
and not contrary to public policy.52
46Lando n9 238.
47Dicey & Morris n 32 1168-1169.
,8Forsyth n20 267.
9A Boggiano International standard contracts (1991) 151.
50Lando n9 285.
511939 AC 277 (PC).
52 Dicey & Morris n 32 1172 & 1175.
XXVI CILSA 1993
182
Party reference and incorporation of foreign law

A distinction must be drawn between an express choice of law and the incorpo
ration of foreign law into a contract. A party reference is an express or tacit choice
of the law which is to govern the contract. Such law constitutes the connecting
factor and is therefore part of the conflict rule of the forum which renders the
law so chosen applicable.53

The incorporation of foreign law, on the other hand, means that the parties adopt
part of a foreign law (other than the applicable law) as contractual terms applica
ble to the transaction. For example, in a sales contract where the proper law
is French law, the parties may stipulate a warranty of merchantability of the goods
sold construed in terms of the United States Uniform Commercial Code.54 The
effect of such incorporation is not to submit the contract to American law as

the proper law, but to incorporate the relevant rules of the UCC as contractual
terms agreed upon between the parties. Incorporation presupposes a proper law
different from that to which reference is made and derives its validity from the
provisions of the proper law.

Because of this, the question of whether the parties may choose an unconnect
ed law, or whether their choice is restricted to the laws having some connec
tion with the contract arises in the context of party reference only, since the
incorporation of part of a foreign law not related to the transaction as contractu
al terms is always possible within the limits of the proper law of the contract.5'
Limitations to party autonomy

Much attention has been devoted to the problem of determining whether par
ties should be allowed to select the applicable law without restriction, or whether
the choice should be limited in some way.
Several issues come into consideration in this regard. First, a distinction must
be drawn between the creation of an obligation and the reciprocal rights and
obligations that arise once the legal obligation has been established. Aspects of
the formation of the contract, such as capacity and consent, should be governed
by an objective law independently of the parties' volition.56

Secondly, the recognition of an unlimited party autonomy presupposes that when
concluding a contract the parties are able to enforce their objectives and protect
their interests in an equitable way. The principle of justice or fairness of exchange
plays a significant role in the just distribution of the obligations and risks assumed
under the contract.57 But where the parties are in a different bargaining posi
tion, and there is the possibility that one party takes an unfair advantage of the
53Lando n 9 255.
54For a detailed analysis of such rules in the United States Uniform Commercial Code (UCC),
see GW Jones 'Warranties in international sales' (1989) International Business Lawyer
497-500.
"Lando n 9 256.
56Cheshire & North n 31 472. This aspect is dealt with more extensively infra.
57Boggiano n 49 151.
183
other, states normally intervene by striking down abusive clauses in terms of

mandatory legislation enacted for this purpose. During the last decades several
countries have enacted statutes against unfair contract terms in contracts of the
type which involve parties in a weaker economic position, such as consumer
sales, life insurance, employment contracts, small loans, etc,58
While situations of inequality and different bargaining position may also exist
in non-consumer contracts, this is not so typical in international trade. Here, the
interests of international commerce call for greater freedom. Commercial sales,
agency and distribution agreements, transport insurance, reinsurance and fran
chising agreements fall into this category, where, in principle, a choice of law
should be upheld, notwithstanding the application of certain mandatory laws

of the forum or of a closely connected system. Measures designed to regulate
the economic policy of a state for example, such as exchange control regula
tions, price controls, import-export restrictions, competition law rules, and the
like, may have an impact on the contract.59

In England, an example of an overriding statute which would apply irrespective
of the law chosen is the Carriage of Goods by Sea Act 1971 which implements
uniform terms and conditions for contracts of international carriage of goods
by sea.60 Although there has been a controversy as to whether this Act in fact
prevents the parties from evading its provisions by adopting a foreign law, this
was the doctrine laid down in The Hollandia.6x In this case the view was taken
that the Carriage Act applied to a bill of lading issued in the United Kingdom
although the parties had chosen Dutch law as the proper law of the contract.
Thirdly, the issue of whether the parties may choose a law which lacks any sub
stantial connection with the contract also arises in the context of limitations to
party autonomy. Closely connected with this aspect is the question whether the
parties may, by choosing an unconnected law, evade the mandatory rules of the
law which would have governed the contract had there not been a choice of
law.62
In England, Lord Wright is taken to have stated English law in the already men
tioned Vita Food case63 when he stated that the intention of the parties to
choose the applicable law must be 'bona fide' and 'legal', although connection
with the law chosen was not 'as a matter of principle necessary'. Where the sys
tem of law chosen has some significant connection, but not necessarily the closest
,8Lando n 9 295 with further references. The English Unfair Contract Terms Act 1977,
for example, provides for several controls over exemption clauses in many kinds of con
tracts. The Act, however, does not apply to international commercial sales. See Cheshire
& North n 31 467.
,9Lando n 9 302. See also infra.

6oThe Carriage of Goods by Sea Act 1971 implements the Hague-Visby Rules which are
contained in the Schedule to the Act. See Cheshire & North n 31 470. The rules have
also been adopted in South Africa in terms of the Carriage of Goods by Sea Act 1 of 1986.
611983 AC 565. See also Plender n 5 156.

62Diamond n 36 293.
63 See n 51.
184
XXVI CUSA 1993
connection, with the contract, and subject to statutory provisions to the con
trary, the chosen law governs the contract.64
The question of whether the parties may adopt a law which has no apparent con
nection with the contract must be considered in terms of the qualification made
by Lord Wright in the sense that a choice of law must be bona fide and legal.
In Dicey's view, this means that a choice of law must not be prohibited by some
applicable statute, and must not be capricious or a mere pretence. In other words,
a choice should be set aside 'only if it was made with an evasive effect'.65 Apart
from this, it is unlikely that an English court would refuse to give effect to an
express choice of law merely because the facts of the case showed no connec
tion between the contract and the chosen law.66
Other countries request a specific relationship between the chosen law and the
contract. In the United States, for example, the Second Restatement6" provides
that a choice of law will be applied unless the chosen law has no substantial rela
tionship to the parties or the transaction and there is no other reasonable basis
for the parties' choice. Thus, it is for the court to decide whether the parties
are behaving reasonably in choosing a particular law.
Apart from the 'reasonable relationship' test or the 'bona fide' test, the public
policy of the forum is another device which a court may invoke to disregard
a fictitious choice of law made by the parties in order to evade the law which
is otherwise applicable. In most legal systems, however, the principle of public
policy has been most frequently used as a safety valve to discard foreign sub
stantive rules because of their content, rather than to disregard a choice of law
made in fraudem legis.68
DETERMINATION OF THE PROPER LAW OF THE CONTRACT
The problem of ascertaining the applicable law is more perplex
of contracts than in almost any other topic.69 The reason for this i
are almost infinitely various.- a well-settled choice of law rule wh

ate for a contract of sale of land is unlikely to be equally appropri
tract of sale of goods or carriage of goods by sea, to name but a f
Connecting factors which feature prominently in the field of

tracts are: the place of business of the parties, the place of inc
company, the flag of a ship, the intention of the parties, the plac
{lex loci contractus), the place of performance (lex loci solutionis) a
tion of fixed property. Which one of these connecting factors is t
In the English conflict of laws, a flexible rule known as the prope
64Dicey & Morris n 32 1173.

65Lando n 9 290.
Dicey & Morris n 32 1175.
6"See supra n 37 par 187(2Xa).
68Lando n 9 291.
69Cheshire & North n 31 448.
185
developed, in order to deal with the problem of ascertaining the applicable law
to an international contractual situation.
English common law

Under this heading reference is made to the rules of private international law
as developed and applied by English courts prior to the incorporation of the Rome
Convention into English law in terms of the Contracts (Applicable Law) Act
1990.70 The distinction is necessary, in order to appreciate the significance of
the new rules incorporated by the Rome Convention.71 Furthermore, the con
vention has a limited scope of application and does not apply, for instance, to
arbitration agreements and agreements on the choice of court.72 In these mat
ters, the English law as developed prior to the Rome Convention still applies.
In the latest edition of the leading text by Dicey and Morris, the proper law of
the contract is described as being 'the system of law by which the parties in
tended the contract to be governed, or, where their intention is neither expressed
nor to be inferred from the circumstances, the system of law with which the
transaction has its closest and most real connection'.73
There has been a significant evolution in the formulation of the English proper
law doctrine.74 As Morris explains, the origins of the doctrine may be traced
back to the civilian writers of the seventeenth century, especially Huber, who
stated that contracts are entirely governed as regards form and substance by the
lex loci contractus, unless the parties had another place in mind, in which case
the lex loci solutionis should apply.7' The lex loci contractus was, in fact, the
connecting factor most usually relied upon by English courts until 1865. From
then onwards, the intention of the parties has been progressively established as
the overriding principle in the contractual conflict of laws.76
The doctrine of the proper law, placing emphasis on the intention of the par
ties, was an emanation of the doctrine of laissez-faire which characterised the
^See supra n 5.
"'Although the basic principles of the convention correspond to the traditional English
rules generally, there are some aspects which are innovative not only with regard to
English law, but also to the law of other contracting states. As will be seen, arts 4(2)
(concept of characteristic performance) and 7 (mandatory rules) of the convention con
stitute truly novel features. See Cheshire & North n 31 505.
"2In terms of art 4, the convention does not apply to questions of status or legal capacity
of natural persons (without prejudice to art 11), succession, matrimonial and family rela
tionships, negotiable instruments, arbitration and choice of court agreements, questions
governed by the law of companies and other bodies corporate, agency, trusts, evidence
and procedure and insurance (other than reinsurance) covering risks situated in the EC.
73Rule 180 n 32 1161-1162.

4JHC Morris The conflict of laws (3 ed 1984) 267 et seq. See also Edwards n 30.
'According to Morris, the first case to show Huber's influence was Robinson v Bland
1760 1 W B1 257. This case is also regarded as the origin of the 'proper law' doctrine,
although the term 'proper law' as such was not used by English courts until well into
the 20th century. Idem 267 and Edwards n 30 42.
6The abandonment of the lex loci rule was partly due to a change in the customs and
techniques of international trade. Until then, merchants ordinarily owned the ships
186
XXVI CILSA 1993
domestic law of contract in the nineteenth century, prior to the intervention of
the state in this field through regulatory legislation.7" However, the question
whether the doctrine should be formulated subjectively or objectively, in other
words, whether the proper law is the law intended by the parties, or the law
which reasonable men in the position of these parties would presumably have
intended is 'a question which has long been controversial among English
writers'."8
Both the subjective (intention of the parties) and the objective (closest connec
tion) views of the proper law have been employed by the courts. But from ap
proximately 1940 onwards, English courts have adopted the objective formula
tion, mostly due to the imposibility, in practice, of ascertaining the intention of
the parties, where they have not, in reality, given thought to the question of the
applicable law. In the words of Singleton J, where there has been no choice of
law 'neither party has given it a thought, and neither has formed an intention
upon it; still less can be said that they have any common intention'."9
In 1951, the famous case of Bonython v Commonwealth of Australia80

produced what is known as the Bonython formulation. In this judgment, Lord
Simonds declared that the proper law of a contract, where there is no express
or inferable choice of law, is the 'system of law by reference to which the con
tract was made or that with which the transaction has its closest and most real
connection'.81
This formulation was adopted by the House of Lords in Re United Railways of
carrying their goods and normally bought and sold their merchandise at the ports. After
1840, however, international trade increased significantly, with the result that shipping
became a separate trade altogether. Thus, merchants and their agents accompanied the
ships less often, while contracts of sale were not concluded as frequently as before at
the place where the goods were loaded and unloaded. Furthermore, the development
of postal and telegraphic services, and the increasingly important role played by com
mercial banks in the financing of trade operations broke up the unity of place and time
in the making and performance of contracts, thus contributing to the displacement of
the lex loci rule. See Lando n 9 244.
" CGJ Morse 'The EEC Convention on the Law Applicable to Contractual Obligations'
(1982) 2 Yearbook of European Law 115-16.
"8Morris n 24 269. As the author explains, Dicey preferred the subjective formulation,
and his 'intention theory' was formulated in his Digest in the following terms
The term 'proper law of the contract' means the law, by which the parties to a contract intended,
or may fairly be presumed to have intended, the contract to be governed; or the law or laws to which
the parties intended or may fairly be presumed to have intended, to submit themselves.
Other authors, such as Westlake (influenced by the 'true seat of the relationship' ap
proach of Savigny) preferred an objective formulation
In these circumstances it may be said that the law by which to determine the intrinsic validity and
effects of a contract will be selected in England on substantial considerations, the preference being
given to the country with which the transaction has the most real connection, and not to the law
of the place of contract as such.
See RH Graveson Conflict of laws (7ed 1974) 405-406, and also Edwards n 30 42-43.
^The Assunzione 1954 150 at 164.
80 1 951 AC 201 (PC) 219.
81 Idem.
187
the Havana and Regla Warehouses Ltd82 in 1961 and since then, has been
almost invariably used by English judges.83
Express or implied choice of law
When the intention of the parties as to the law governing the contract, is ex
pressed in words, this expressed intention, in general, determines the proper
law of the contract.84 This rule reflects the incorporation of the parties' freedom
of choice as 'a fundamental principle of the English rule of conflict of laws'.85
In the Vita Food case Lord Wright said

It is now well settled that by English law the proper law of the contract is the law
which the parties intended to apply. That intention is objectively ascertained, and,
if not expressed, will be presumed from the terms of the contract and the relevant
surrounding circumstances.86
Where there is no express choice of the proper law, it is open to the court to
determine whether there is an implied or inferred choice of law in the contract.
In this case, the intention of the parties, as inferred from the terms and nature
of the contract and the circumstances of the case, will determine the proper law
of the contract.87
During the last part of the nineteenth century and the beginning of this century,
English courts held that an agreement to submit to the jurisdiction of the courts
or to arbitration in a certain country constituted sufficient evidence of an inten
tion to apply the law of that country.88 But this doctrine was subsequently
reversed in Compagnie Tunisienne de Navigation SA v Compagnie d'Armement
Maritime 5/1,89 where the court found French law to be the proper law of the
contract, in spite of an arbitration clause selecting London as the place of arbitra
tion. While the court agreed that the inclusion of an arbitration agreement con
stitutes a very strong indication of a common intention to apply the law of the
country of arbitration, such an agreement 'should not be treated as giving rise
to a conclusive or irresistible inference',90 where the contract has substantive
foreign connections.
Apart from an arbitration clause, factors within English case law which are sug
gestive of an implied choice of law have included, for example, the use of certain
821961 AC 1007.
83See Morris n 74 269.
84Rule 180 sub-rule 1 Dicey & Morris n 32 1169.

8yVita Food case (n 51) at 298.
86Idem at 289.
8-7 Rule 180 Sub-rule 2. Idem 1182.
88Lando n 9 308, cites two leading cases, Hamlyn & Co v Talisker Distillery 1894 AC 202
(HL) and Spurrier v La Cloche 1902 AC 446 (PC) where the court considered that the
law of the place of arbitration was intended to be the proper law of the contract.
89SA 1971 AC 572. The case concerned a charterparty contracted in France for the trans
port of oil between Tunisian ports. While payment was to be effected in France, the
contract provided for arbitration in London.
90Per Lord Wilberforce at 596.
188
XXVI CILSA 1993
terms or forms closely connected to the system of law of a given country,91 th
nature and location of the subject matter of the contract, the use of a certa
language and the designation of the currency in which payment is to be
effected.92
Some judges, differing from a more generally accepted approach, have regarded
these factors not as indicating a tacit choice of law by the parties, but rather as
links between the contract and the country or legal system concerned, in decid
ing on the law of the closest connection. In practice, the line between the search
for an implied intention and the law of the closest connection is a very fine one
and frequently courts move straight from the first stage (express choice of law
to the third stage (law of the closest connection).93 Whichever way they ma
be regarded, however, these factors are relevant in giving greater efficacy to th

contract, whether or not they are regarded as an indication of the parties' inten
tion.
Absence of choice
When the intention of the parties to a contract with regard to the law g
it is not expressed and cannot be inferred from the circumstances, the c
is governed by the system of law with which the transaction has its clos
most real connection.94
As was mentioned earlier, English courts have, in this century, increasingly sup
ported a more objective approach in the ascertainment of the proper law. In the
Mount Albert case, Lord Wright said that in the absence of choice
the court has to impute an intention or determine for the parties which is the proper
law which, as just and reasonable persons, they ought to or would have intended
if they had thought about the question when they made the contract.95
The objective approach in determining the proper law was taken a step further
when all references to the parties, even as hypothetically reasonable men, was
91 For example, terms such as 'act of God' or 'Queen's enemies' may be taken to point
to English law as the law chosen by the parties. The same may be said of a contract
containing a reference to a certain statute, or expressed in such terminology as has been
approved or prescribed by the authorities of a given country. See Dicey & Morris n 32
1184.
92 Idem.
93Dicey & Morris point out that in Armadora Occidental SA v Horace Mann Insurance
Co 1977 1 WLR 520 Kerr J decided the proper law by reference to the second test (in
ferred intention), and this decision was affirmed by the Court of Appeal on the basis
of the third test (closest connection). Similarly, in Amin Rasheed Shipping Corporation
v Kuivait Insurance Co 1984 AC 50, Lord Wilberforce reached the same result by ap
plying the third test as the other members of the House did by the second test.
^Rule 180 sub-rule 3 Dicey & Morris n 32 1190.
95Mount Albert Borough Council v Australasian Temperance and General Mutual Life
Assurance Society Ltd 1938 AC 224 at 240. As Morris highlights, this formulation was
adopted later on, in The Assunzione (n 79), with the significant omission by Singleton
J of the words 'or would', thus indicating a shift to a more objective formulation. Mor
ris n 74 276.
189
abandoned in favour of the 'closest and most real connection approach of the
Bonython case. The courts have concentrated on finding the localisation of the
contract, indicated by the grouping of its elements as reflected in its formation
and its terms.96
In this enquiry, many factors may be taken into consideration. The most impor
tant connecting factors, as indicated by English case law, are the place of con
tracting, the place of performance, the places of business or residence of the par
ties, and the nature and subject-matter of the contract.97
To a great extent the notion of localisation implies a mere counting of the links
with different countries, the proper law being that of the country which has the
most.98
When there is no clear preeminence of connections with a certain country, great

weight will normally be given to the law of the place of performance, especially
where a contract is concluded in one country and wholly executed in another."
In the case of sale of goods, specifically, the law of the place where the seller
has to fulfil his obligations as to the delivery of the goods will often be found
to have the closest connection with the contract.100
South African law
Although the influence of English law in shaping South African private
96Cheshire & North n 31 462 and Edwards n 30 59.

97Dicey & Morris n 32 1192.
98An example of this approach is the following passage from Sayers v Internat
ing Co 1971 33 All ER 163
So far as the defence in contract is concerned, the contract with Mr Sayers was negotiated
in England. It was for the services of xMr Sayers, an Englishman, asking him to go over
spell of work. It was in the English language. The salary was to be paid in the English
sterling. He was insured under the English National Insurance Scheme. He was to come back on
leave to his home in England. True it is that the employers were Dutch (who employed personnel
of all nationalities) but the contract was administered in London. The records were kept in London,
Texas and Holland. If I were asked to decide the proper law of the contract.... I should be inclined
to say that it was English {per Lord Denning at 166).
"in The Assunzione (n 79) French charterers claimed from Italian shipowners damages
in respect of damage to, and short delivery of, a cargo of wheat being carried from
Dunkirk to Venice. The court referred to several connecting factors: the charterparty
had been made in France, and the bills of lading were issued there. The contract was
in English and the bills of lading in French. The ship was Italian; the cargo, loaded in
France, was to be delivered in Italy, and the freight was to be paid in Italian lire, in
Italy. It was held that Italian law was the proper law of the contract, and that reasona
ble persons would have intended that law to govern. In the view of Dicey & Morris,
this case shows that, where both parties have to perform in a country other than that
in which the contract was made, the argument in favour of the lex loci solutionis is
very strong, because the contract 'is almost certain to be more closely connected with
the law of the place of performance than with any other law' n 32 1193.
100In many instances, especially fob sales, the place of delivery will, in practice, coincide
with the place of business of the seller. As to cif sales, there are apparently very few
cases were the proper law came into consideration. In the particular cases, the issue
was solved in terms of arbitration clauses. Idem at 1260-61.
190
XXVI CILSA 1993
tional law rules has been considerable,101 the proper law doctrine in South Afri
ca has not developed to the same extent as in England.102 A discussion of the

main cases where the issue was touched upon will illustrate the point.
Express or implied choice of law

South African courts have long recognised that at the time of concluding the con
tract, the parties may select the legal system which is to regulate the transaction.
In Laconian Maritime Enterprises Ltd v Agromar Lineas Ltd,Wi Booysen J con

firmed this in saying
That our law recognises party autonomy in respect of the proper iaw of a contract
seems clear. Thus where the parties have expressly or impliedly (or tacitly) agreed
upon a governing law our courts would give effect to the intention of the parties.104
In the absence of an express choice of law, some factors which have been consi
dered especially suggestive of a tacit choice of law include the reference to an

Act of parliament of a particular country105 and the use of technical terms of a
particular legal system106.
Absence of choice
In determining the applicable law when the parties have not considered the
either expressly or impliedly, South African courts apply the proper
trine. The central rule generally followed in assigning the governing law
the lex loci contractus governs, unless the contract is to be performed el
in which case the lex loci solutionis applies.107
""See E Spiro 'Failure to choose the applicable law' (1984) 47 Tydskrif vir Hed
Romeins-Hollandse Reg 148-149; E Kahn 'International contracts I' (1990) 19
man's Law 205; Edwards n 30 38 and 40, where the author refers to the 're
phenomenon' and the process of receiving foreign legal rules, concepts and d
into South African law.
102Edwards n 30 59, approving the judgment of Grosskopf J in Improvair Cape (Pty)
V Establissements Neu (n 41) at 145-6.
103See n 42.
104At 525, confirming Standard Bank of South Africa Ltd v Efroiken and Newma
40) at 185; Guggenheim v Rosenbaum (2) 1961 4 SA 21 (W) at 31 and Improvair (Cap
(Pty) Ltd v Establissements Neu (n 41) at 145.
105Forsyth n 20 272 cites Stretton v Union Steamship Company Ltd 1881 EDC 315, wh
it was held that the reference to the English Carriers Act showed that the parties
tended the contract to be interpreted by the laws of England, and the Improvair c
(n 41) at 145, where Grosskopf J envisaged that there might be a tacit choice whe
the contract deals with concepts peculiar to a particular legal system.
106In The Castle Mail Packets Co (Ltd) v Mitheram and Toteram 1892 13 NLR 199
court relied partially on the use of English legal terms to determine that the partie
tended English law to apply, although Forsyth concludes that, in reality, the part
had not given thought to the issue of the applicable law. Idem at 273
107Other connecting factors, such as the domicile and nationality of the parties, have
been used by the courts. However, as Forsyth explains, these factors have served, ge
ally, to strengthen the reliance on either the lex loci contractus or the lex loci solu
nis rule; n 20 279.
191
In the leading case Standard Bank of South Africa Ltd v Efroiken and New
man, 108 the court relied upon the prevailing approach of English law at the time.
De Villiers J said
The rule to be applied is that the lex loci contractus governs the nature, the obliga
tions and the interpretation of the contract; the locus contractus being the place
where the contract was entered into, except where the contract is to be performed
elsewhere, in which case the latter place is considered to be the locus contractus
109
After declaring that the intention of the parties was the true criterion to deter
mine which law governed the interpretation and effect of a contract, the judge
stated that
... where the parties have not given the matter a thought, courts of law have of
necessity to fall back upon what ought, reading the contract in the light of the subject
matter and of the surrounding circumstances, to be presumed to have been the in

tention of the parties.110
Subsequently, in a number of judgments, the subjective approach was

followed.111
A further attempt to analyse the problem was made in the Improvair case.112
Here, Grosskopf J held that the term 'proper law' was often said to be the sys
tem of law agreed on or intended or presumed to have been intended by the
parties. Since, in the case under consideration, there was no express or implied
choice of law, he found it necessary to 'impute an intention to the parties'.113
In ascertaining the proper law, the judge cited the above dictum in the Efroiken
case, remarking that it no longer reflected English law, which had subsequently
taken an objective approach of which he approved.

However, in expressing that French law was considered to be the proper law,
108See n 40. The case concerned contracts of credit concluded between the Standard Bank
and Efroiken and Newman, which were related to a transaction for the purchase of
flour in the United States of America.
109 At 185.
ii0Idem.
11'Kahn cites as examples Berman v Winrow 1943 TPD 213 at 216 and Guggenheim (n
104) at 31; E Kahn 'International contracts V' (1991) 20 Businessman's Law 126. In
Benidai Trading Co Ltd v Gouws & Gouivs (Pty) Ltd 1977 3 SA 1020 the English case
of Compaigne Tunisienne de Navigation SA (n 89) - where the majority of their lord
ships gave support to the Bonython formulation - was considered, although in the
particular case no need arose for the court to pronounce itself on the 'closest connec
tion' test.
u2See n 41. A South African company contracted with a French company to make a joint
tender for air conditioning work at a nuclear power station. The parties entered into
a contract in France whereby they stipulated their respective obligations. In terms of
the contract, the French company would be responsible for the operating instructions,
while the South African company would be mainly responsible for the work on site.
The contract further provided for an arbitration clause, which was valid in terms of
French law but invalid in terms of South African law. The court was asked to decide
which law was the applicable lex causae.
'1 sAt 15.
192
XXVI GILSA 1993
Grosskopf J combined the older test of the imputed intention with that of the
'closest and more real connection' by saying

Frenen law has the closest and most real connection with the transaction between
the parties and... they must be taken to have intended French law to apply.11
In the latest case, Laconian Maritime Enterprises, the court took the sam
approach as Grosskopf J in the Improvair case: while Booysen J preferred
objective formulation of the proper law currently applied in England, he
felt himself bound by the rule laid down in Efroiken.u6
Kahn concludes his discussion of local cases which touch upon the proper
doctrine by presaging the adoption of a more objective formulation of the pro

law in South Africa.117 Until this happens, it is perhaps appropriate to highlig
the fact that, in practice, it will be rare for the courts to presume that partie
have intended to apply any legal system other than that with which the contr
has the closest and most real connection.118
Uniform law
There is a marked similarity in the structure of conventions dealing with

international law rules applicable to international contracts. First, there is
sideration of the question whether there is freedom for the parties to
the law which is to govern their contractual relationship. Then, a series of

to be applied in the absence of choice are set out. Where necessary, special
for particular types of contract exist, which are followed by rules of a ge
nature applicable to most types of contract. The following discussion will
itself to rules included in the Rome Convention and the two Hague Sa
ventions, insofar as they are relevant to international commercial sales
Rome Convention
The starting point in the Rome Convention is that the parties are fr
ll4At 152. The court regarded the following factors as significant in imputing
to the parties: the defendant was domiciled in France, and there the adm
the joint enterprise between the parties was conducted; the plaintiff wa
South Africa, where the income-producing activity was to be performed
prevailed, in view of the relationship of the parties, and also because wh
the contract they did not know whether they would ever do any inco
work in South Africa. Kahn n 111 127.
"'See n 42. Prior to this case, a decision of the Appellate Division in Ex Parte Sp
NO 1985 3 SA 650 (A) which concerned the formal validity of an antenuptial con
referred to the proper law as understood and applied in England at present: th
expressly or tacitly chosen, and otherwise the law of the closest and most real c
tion. In the words of Kahn, 'the judgment presages a movement towards the gen
acceptance in commercial contracts of this formulation'; idem.
u6At 526.
117Kahn n 111 127.
ll8Forsyth n 20 275, emphasising that both Grosskopf J and Booysen J in the Improvair
and Laconian cases respectively said that they would have reached the same conclu
sion whichever of the two tests they applied.
193
the law applicable to their contract.119 The choice of the applicable law must
be expressed or demonstrated with reasonable certainty by the terms of the con
tract and the circumstances of the case.120
The wording of this article has led some authors to suggest that English courts
must now require stronger evidence of the parties' intention than was required
under the antecedent law.121 Morse, for example, considers that the notion of
the choice being 'demonstrated with reasonable certainty' could give rise to some
difficulty for systems such as English law which subscribe to the view that where
parties have not expressly chosen a law they may nevertheless be taken to have
implied one.122
On the other hand, it has been pointed out that, in practice, it would be difficult
to find English case law preceding the Rome Convention which contained ex
amples of a law inferred by a court other than where that choice had been demon
strated with 'reasonable certainty' from the circumstances of the case.123
The freedom to choose the applicable law is unlimited: the convention allows
the parties to choose a law unconnected with the contract.124 If, however, the
parties do choose a foreign law when the contract is otherwise entirely connected
119Art 3(1).
120It follows from this article and from the Giuliano-Lagarde Report that the convention
contemplates an implied choice of law, provided that the choice appears with suffi
cient clarity from the contract as a whole or the circumstances of the case. Among the
circumstances in which a court might be compelled to conclude that the parties in
tended to have their contract governed by English law is, for example, the use of a
Lloyd's policy of marine insurance. Similarly, a previous course of dealing between

the parties under contracts containing an express choice of law may leave the court
in no doubt that the contract in question is to be governed by the law previously chos
en, where the choice of law clause has been omitted in circumstances which do not
indicate a deliberate change of policy by the parties. Report n 17 (par A5.25) 259 and
Plender n 5 91.
121Under English law, an implied choice of law need not be demonstrated 'with reasona
ble certainty'. It suffices that the intention of the parties be inferred from the terms
and nature of the contract and the circumstances of the case. See supra.
122Morse n 77 116-117. As the author points out, the importance of the matter lies in the
fact that, if art 3 (express or implied choice of law) is not applicable, the governing
law would have to be determined in terms of art 4 (applicable law in the absence of
choice), which may lead to a different result.
123Plender n 5 92 refers to Tzortzis v Monark Line A/B 1968 1 All E R 949 as one such
example. In this case, the court decided on English law as the proper law of the con
tract, in view of the existence of an arbitration clause designating London as the place
of arbitration. This was the only connection with England, since the contract, having
been concluded in Sweden, provided for the sale of a ship in Sweden, by Swedish sellers
to Greek buyers. However, this decision was not followed in subsequent cases, where
the presence of an arbitration clause was merely considered as one among many other
factors claiming application. The Giuliano-Lagarde Report furthermore states that a choice
of law may be inferred from the choice of a place of arbitration, but only in circum
stances where the arbitrator is to apply the law of that place; n 17 (par A5.25) 259.
12~*Diamond n 36 266-267.
XXVI CILSA 1993
194
with one country, article 3(3) provides that such choice shall not prejudice the
application of mandatory rules of the law of that country.125
The concept of mandatory rules and their treatment constitute one of the most
controversial aspects of the convention, especially with regard to the United King
dom.126 The convention defines mandatory rules as 'rules of law of a country

which cannot be derogated from by contract'.127 Apart from the context of ar
ticle 3(3) and the reference to consumer contracts and contracts of employment
in articles 5 and 6, the convention refers to mandatory rules in article 7.128
The treatment of mandatory rules under article 7(1) presents an entirely novel
phenomenon for English lawyers, since it contemplates that a court in a con

tracting state will apply, for certain purposes, neither its own law nor the ap
plicable law of the contract but the law of a third country, on the principle that
the situation has a close connection with it, provided those rules are to apply,
whatever the law governing the relevant contract.129
Although this doctrine has been supported elsewhere,130 the theory as such has
l2,The objective of this provision is to ensure that parties do not evade the application
of any of the mandatory rules of their domestic law by choosing a foreign law. As North
points out, this article is of particular importance where the otherwise applicable law
is not the law of the forum, as the forum's mandatory rules may be applied in terms
of art 7(2). The example given by the author illustrates the case in point: an action brought
in France (by operation of an agreement to submit to the jurisdiction of the French

courts) relates to a consumer sale wholly connected with England, where the parties
reside. Any exemption clause in the contract is regulated by the English Unfair Con
tract Terms Act 1977, but the parties choose German law as the proper law of the con
tract, which contains an exemption clause. The French court, while accepting the choice
of German law in general, must apply the controls on exemption clauses contained
in the 1977 Act because they cannot be evaded by choice of a foreign law as the proper
law; n 19 13
u6Dicey & Morris n 32 1252; similarly North n 19 17.

'"Art 3(3).
128 1. When applying under this convention the law of a country, effect may be given to the mandatory
rules of the law of another country with which the situation has a close connection, if and in so
far as, under the law of the latter country, those rules must be applied whatever the law applicable
to the contract. In considering whether to give effect to these mandatory rules, regard shall be had
to their nature and purpose and to the consequences of their application or non-application.
2. Nothing in this Convention shall restrict the application of the rules of the law of the forum in a
situation where they are mandatory, irrespective of the law otherwise applicable to the contract.
l29Plender n 5 152. Such rules are likely to express some strongly based economic, social
or environmental policies, such as exchange control legislation, export prohibitions
etc. The Giuliano-Lagarde Report states that in order for article 7(1) to apply, it is essen
tial that there be a genuine connection with the other country. For example, there would
be a genuine connection when the contract is to be performed in that other country

or when the party is resident or has his main place of business in that other country;
n 17 (par A5.52) 272-273.
130The theory was endorsed by the Dutch Hge Raad in its judgment known as the Alnati
case (H R 13 May 1966 Ned Jur 1967 No 3). This decision established a distinction in
Dutch law between provisions which are only domestically mandatory and those which
are internationally mandatory. In Senco Trading Co v Dammers NV Rechtbank (Nov
28 1967) Ned Jur 1969, the District Court of Rotterdam later built on the Alnati case
by adding that the parties may not set aside mandatory provisions of the applicable
law which are part of a uniform law enacted pursuant to an international convention
such as the Hague Rules.
195
found no favour in England.131 The divergence of English and continental law

on this point explains the reservation of the United Kingdom with respect to
article 7(1).132
The discretion conferred on the court of the forum in terms of the above
provision133 is distinguishable from the power reserved to the forum to apply
its own mandatory rules in terms of article 7(2). The Giuliano-Lagarde Report
refers to such mandatory rules as 'lois d'application immdiate' and exempli
fies them as 'rules on cartels, competition and restrictive practices, consumer
protection and certain rules concerning carriage'.134
The application of article 7(2) to the United Kingdom might also present special
difficulties, since there is no such general concept as 'mandatory rules' in En

glish law: English statutes do not generally state whether the prohibitions they
impose apply only to contracts governed by English law or to all contracts ir

respective of their proper law.135 The controversy surrounding the application
of the Carriage of Goods by Sea Act 1971 in the Hollandia case mentioned earli
er illustrates the practical implications of the absence of clear principles in this
regard.136
It has been suggested that, for the future, the enactment of the convention in
England may induce parliamentary draftsmen to state with greater precision the
extent to which statutory provisions apply to contracts which are governed by
foreign law. If not, it would be a matter of statutory construction for the courts
to decide.137
13'During the stage of negotiations of this convention, it was felt by the United Kingdom
that art 7(1) was a 'recipe for confusion', in that a court might feel obliged to work
its way through three possible mutually inconsistent sets of mandatory rules (those of
the applicable law, the forum and the third country) thus creating uncertainty in an
area where certainty is crucial. Furthermore, adoption of art 7(1) could increase the
expense of litigation, in that proof of a whole range of potentially applicable mandato
ry rules might be called for. Article 7(1) might also lead to unnecessary delay in litiga
tion, and 'might frighten potential arbitration and litigation away from the United King
dom'. North n 19 20.
13iIn terms of article 22 of the convention contracting states have the right to declare
that they will not be bound by art 7(1). The United Kingdom, Luxembourg, Germany
and Ireland exercised that right on ratifying the convention.
133As it is phrased, article 7(1) gives courts permission, not a mandate, to apply foreign
rules of direct application.
''"'Report n 17 (par A5.54) 273. Plender states that this provision was added in order to
safeguard the concerns of some delegations that the parties to a contract might 'opt
out' of legal provisions dealing with these important policy matters; at 155.
xi^Idem at 156.
136See supra 15. Furthermore, it is not altogether certain that the issue has been settled
conclusively by the decision of the House of Lords in that case. Idem.
137Plender cites the case of Holmes v Bengladesh Biman 1989 1 Lloyds Rep 444, wher
the House of Lords held that in s 10 of the Carriage by Air Act 1961 the words 'carriage
by air ... of such descriptions as may be specified' excluded carriage in which the places
of departure and destination and any agreed stopping place were all within the territo
ry of a single state; consequently, the provisions of that Act which would have limited
the liability of the carrier in case of fatal accidents was inapplicable, and the carrier
was entitled to limit its liability beyond that limit.
196
XXVI CILSA 1993
Finally, in article 16, the convention preserves the widely accepted rule of pri
vate international law that the application of a rule of the country specified by
the choice-of-law rules of the convention may be refused, if such application

is manifestly incompatible with the public policy (ordre public) of the forum.158
Where the parties have not chosen the applicable law in acordance with article
3, the contract is governed by the law of the country with which it is most closely
connected. Article 4 then provides various presumptions to assist in applying

the 'most closely connected' standard.
The primary presumption is that the contract is most closely connected with
the country where the party who is to effect the performance which is charac
teristic of the contract has his habitual residence.139 If that party is a company,
this is its place of central administration.
If, however, the contract is entered into in the course of the party s trade or
profession, the closest connection is with the place of business through which
the performance is to be effected.
When goods or services are being exchanged for money, the Giuliano-Lagarde
Report states that it is the delivery of goods or the provision of services that con
stitutes the characteristic performance, and not the payment of the price. Ac
cordingly, in a contract of sale, the presumption will normally lead to the appli
cation of the seller's law.140 Similarly, a Dutch court has held that, in a contract
138The mandatory rules contemplated in art 7(2) are to be distinguished from rules of ordre
public-, while the former preserve the rules of law of the forum where they are manda
tory irrespective of the law otherwise applicable to the contract, the latter authorise
the forum to refuse to apply the law of a country specified by the convention where
such application is manifestly incompatible with the public policy of the forum. Plender
n 5 157.
l39Art 4(2).The concept of characteristic performance owes its origins to Swiss law: s 11
of the Swiss Private International Law Act 1987 states that a contract is presumed to
be most closely connected with the country in which the party who is to effect the
characteristic performance has his habitual residence or, where the contract is entere
into in the course of a party's trade or business, his place of business. In the Rom
Convention, the function of article 4(2) is to give greater precision and predictabilit
to the test required by article 4(1): the identification of the country with which the
contract is most closely connected. To that end it creates a presumption, which is rebu
table: article 4(5) states that the presumption shall not apply where the characteristi
performance cannot be determined, and - even if it can be determined - where
appears from the circumstances as a whole that the contract is more closely connecte
with another country. For English lawyers, the principal innovation in article 4 of th
convention is not to be found in the rule whereby the applicable law is that of th
country with which the contract is most closely connected, but in the presumptions
to be applied in identifying that connection. See Plender n 5 104, 108-109 with furthe
comments.
""Report n 17 (par A5.36)265. With regard to the doctrine of characteris

it is sometimes claimed that this doctrine enables the court to find the 'economic centre
of gravity' of the contract: it has been said that the doctrine requires an examination
of the function of a contract with special regard to its specific social purpose. But, if
one thinks of a contract of sale of goods, for example, where an import-export dealer
buys the goods in one country and sells them in another, carrying on his own business
197
of sale of goods, the party who must perform the characteristic act of perfor
mance is the seller.141
Special rules are provided for contracts concerning immovable property and car
riage of goods, as well as for consumers and employees.142 Furthermore, para

graph 5 provides for an 'escape clause' in that it disregards all previous presump
tions if 'it appears from the circumstances as a whole that the contract is more
closely connected with another country'.
1955 Hague Sales Convention143

The 1955 Hague Sales Convention recognises the principle of freedom of choice.
However, article 2(2) of the convention provides that a choice of law, in order
to be effective, must be contained in an express clause, or unambiguously result
from the provisions of the contract.
The legislative history of the convention shows that its draftsmen sought to en
sure that the provisions on the law applicable in the absence of an express choice
would effectively be applied. By restricting the operation of party autonomy to
those cases in which the existence of a choice of law was beyond doubt, their
intention was to avoid the application of any other law found expedient to ap
ply in the circumstances under the 'presumed intention of the parties'
doctrine.144
In the case of absence of choice, the convention provides a rigid system of in

flexible rules, the general principle being that the law where the seller has his
place of business shall apply to the contract.145 This principal rule is subject to
two exceptions. One is that the law of the buyer's habitual residence applies if
in a third country, it is not easy to see why the socio-legal sphere in which the contract
is embedded should be the dealer's country rather than the country of origin of the
goods or the country of destination. This example serves to emphasise that in reality,
by applying the characteristic performace approach, 'we are not seeking the country
where the characteristic performance is carried out but, rather, the party whose per
formance is characteristic, turning then to the country where that party has his resi
dence or place of business'. Diamond n 36 274-275.
141 Machinale Glasfabriek De Maas BV v Emaillerie SA 1984 European Commercial Cases

123.
142Arts 4(3), 4(4), 5 & 6.
14iSee supra n 4.
144For the purpose of article 2(2), a clause submitting the contract to the jurisdiction of
a particular country is only an element supporting the existence of an unambiguous
choice of law. Other elements, such as the use of legal terms or a reference to the pro
visions of the law of the country where litigation or arbitration is to take place need
to be present as well. Furthermore, circumstances extrinsic to the terms of the con
tract are not to be taken into consideration. Lando n 16 65.
145Art 3(1). As Lando explains, the application of the seller's law rests on the assumption
that the law of that party whose obligations are more complex and more extensively
regulated by the law should be chosen, and that the seller's obligations are more com
plex than those of the buyer. Moreover, the seller's place of business is where most
of the contracts are prepared, calculated, decided upon and performed: the centre of
the 'real obligations' of the seller remains at his principal place of business. Idem.
198
XXVI CILSA 1993
the seller or his agent has received the purchase order in the buyer's state.146
The other is that in case of sales made at an exchange or a public auction, the
sale shall be governed by the domestic law of the country in which the exchange
is situated or the auction takes place.w
Finally, with regard to limitations to party autonomy, article 6 states that the ap
plication of the law determined by the convention may be excluded on the

ground of public policy. No reference is made to other mandatory rules.
1985 Hague Sales Convention148

The approach adopted in the 1985 Sales Convention is more flexible than that
of the 1955 Convention.149
The convention gives priority to the principle of party autonomy. Article 7 pro
vides that a contract of sale is governed by the law chosen by the parties. The
parties' agreement must be express or clearly demonstrated by the terms of the
contract and the conduct of the parties, viewed in their entirety.150
An important difference between the present convention and the Rome Con
vention is the absence in the former of a rule giving effect to the directly ap
plicable rules of a foreign law that is not the law applicable to the contract.
Although the issue was considered at the Hague Conference, a majority of dele
gations preferred not to include such a rule in the convention.151
Two general provisions embody restrictions on party autonomy. Article 17

preserves the application of the mandatory rules of the forum, while article 18
recognises the public policy rule, by stating that the application of the govern
ing law may be refused where such application would be manifestly incompati
ble with public policy.
146Art 3(2). Where the seller meets the buyer at the latter's place of business, negotiates
the particular terms and concludes the contract, there is reason to assume that the seller
has submitted himself to the laws of the buyer.
147 Art 3(3). The application of the lex loci to auctions and sales at commodity exchanges
is justified, in that those who come to these places submit to the rules in force there.
148See supra n 4.
l49Lando n 16 69. The rules of the 1955 Convention were criticised for being too rigid,
thus leading to unjust results.
150The convention goes further than its predecessor in accepting an implied choice of
law to be 'clearly demonstrated by the terms of the contract and the conduct of the
parties viewed in their entirety'. This expression resembles that of the Rome Conven
tion, in that it gives the court more room to infer a choice of law made by the parties:
under certain circumstances, a clause in the contract submitting disputes to the courts
or arbitral tribunals of a particular country, for example, may be viewed as an agree
ment to choose the law of that country.
"'Lando n 16 79 believes that the suppression of the rule was unfortunate. Mandatory
rules found in laws on cartels and monopolies, in currency regulations and price laws,
for example, may be important for the economy of a country and could be more effi
ciently enforced if they are given effect by foreign courts also. Similarly, rules enacted
for the preservation of the environment and cultural or historical articles, presuppose
international cooperation for their enforcement.
199
In the absence of choice, the primary rule in article 8(1) is the application of the
law of the state where the seller has his place of business at the time of conclu
sion of the contract.152 This basic rule is considerably modified by the three ex
ceptions in article 8(2) in terms of which the law of the buyer applies.
The first exception contained in article 8(2)(a) indicates that the law of the state
where the buyer has his place of business applies 'where negotiations were con
ducted, and the contract concluded by and in the presence of the parties, in that
state'.153
The second exception, in article 8(2)(b), provides that the buyer's law applies
if 'the contract provides expressly that the seller must perform his obligation
to deliver in that state'.154
The situation of a sale by tender constitutes the third exception contemplated

in article 8(2)(c), which states that the law of the buyer applies where the con
tract was concluded on terms determined mainly by the buyer and in response
to an invitation directed to persons invited to a bid.
Similarly to article 4(5) of the Rome Convention, article 8(3) introduces a flexi
ble rule:
by way of exception, where, in the light of the circumstances as a whole, for in

stance any business relations between the parties, the contract is manifestly more
152Article 14 defines place of business, in terms similar to the 1980 UN Sales Convention
(n 6) as
1. If a party has more than one place of business, the relevant place of business is that which has
the closest relationship with the contract and its performance, having regard to the circumstances
known to or contemplated by the parties at any time before or at the conclusion of the contract.
2. If a party does not have a place of business, reference is to be made to his habitual residence.
153For the law of the buyer to govern, negotiations must have been conducted between
the parties who must be present in the buyer's state, and the contract must have been
concluded by the parties when they were both present in that country. However, the
text as it stands is somewhat obscure, in that it is not clear what is required for 'negoti
ations' to take place. For example, whether negotiations presuppose a bargaining about
the seller's terms or whether it also comprises discussions and information regarding
the goods and his pre-fixed terms might be important for the application of either the
seller's or the buyer's law. For instance, it is debatable whether the mere presentation
of a standard form contract amounts to 'negotiations'. See McLachlan n 24 6o6.

154At the Hague Conference, delegates who proposed the rule stated that it would only
apply where the parties had expressly agreed that the goods would be delivered in the
buyer's country. Transport clauses, or other similar clauses which might implicitly make
reference to the place of performance of the seller's obligations were not clauses en
visaged by this provision. Thus, it is not clear whether accepted standard trade terms
such as those issued by the International Chamber of Comerce - INCOTERMS - would
be covered by this paragraph. If so, further difficulties exist: a contract fob involves
delivery at the commencement of the carriage, often in the seller's country; cif sales
involve delivery at the destination, often in the buyer's country. Since it is usually ex
pressly stated whether the contract is on cif terms and where the delivery is to take
place, it seems that this could be taken as an express designation of the place of perfor
mance. If a majority of contracts were found to require the seller to perform in the
buyer's country, this would lead to the buyer's law being applied more often than the
seller's. Also, it would seem strange to apply different laws according to the trade terms
to which the contract is submitted. Diamond n 36 279.
XXVI CILSA 1993
200
closely connected with a law which is not the law which would otherwise be ap
plicable to the contract under paragraphs 1 or 2 of this Article, the contract is
governed by that other law'.155
SCOPE OF THE PROPER LAW
Once the proper law has been ascertained on the principles consid
it is necessary to determine whether all the incidents of the contract

governed by the proper law or whether some are governed by a diffe
A first distinction must be made between aspects relating to material
formal validity of the contract.
Material validity
Here, the issue to be determined is which law decides whether a c
apart from requirements as to form, a valid contract. Under English l
mation and validity of the contract, its interpretation and perfo
governed by the proper law and the same may be said to be the positi
Africa.156 Article 8(1) of the Rome Convention provides that the exis
validity of a contract shall be determined by the law which would gov
the contract were valid. The 1985 Hague Sales Convention contain
provision.157
With regard to certain aspects relating to the creation of a contract, there is agree
ment that the normal principles for ascertaining the proper law should be departed
from and special provisions designed to deal with particular issues should be
established. Questions as to the effect of silence by a party in the formation of
a contract or relating to capacity to contract, for example, need special attention.
Formation of the contract: consent
The existence of a valid agreement is essential to the formation of a con
Problems in this regard may arise where the parties conduct negotiations fr
different countries by correspondence, for example, since there is a wide di
gence among the different legal systems as to the moment an offer is accep
and the agreement is concluded.158
155This provision may be excluded by states by a reservation in terms of article 2
thermore, it does not apply - even in the absence of reservation - where the
is made between parties having their places of business in states parties to the
UN Sales Convention (see n 6), if the issue is governed by the rules of that conven
In these cases, the rules of art 8(1) and (2) of the Hague Convention are 'hard and
156Edwards n 30 65, Forsyth n 20 279.
157Article 10(2) states that the existence and material validity of a contract of sale,
any of its terms are determined by the law, which under the convention would g
the contract or term if it were valid.
158Cheshire & North n 31 474. With regard to an acceptance by means of a statement,

legal systems differ as to whether the acceptance is effective on dispatch of the state
ment or only on its receipt. English and South African law adopt the expedition theory
of acceptance, in terms of which the agreement is completed upon the posting of the
acceptance, irrespective of whether it reaches the offeror. In order to avoid problems
arising from the diversity of rules relating to offer and acceptance, the 1980 UN Sales
Convention (see n 6) contains a uniform rule in terms of which an offer becomes effec
tive at the moment the indication of assent reaches the offeror (art 18(2)).
201
As a general rule, the putative proper law, ie the law which would have governed
the contract if it were valid, governs questions of offer and acceptance, and the
existence of consensus between the parties.159

There are two English decisions which support this view. In Albeko Schuhmachi
nen AG v Kamborian Shoe Machine Co Ltd'60 an English company posted an

offer to a Swiss company. The latter claimed to have posted a written accep
tance, which was subsequently lost. Contrary to English law, Swiss law is to the
effect that there is no agreement until the acceptance has been received by the
offeror. The court found that there was no contract, since it had not been suffi
ciently proved that the letter of acceptance had ever been posted. But even if
the finding had been different, the court said that Swiss law, being the proper
law, would have governed the contract had one been concluded.
Further support for the putative proper law may be found in Compaiha Naviera
Micro SA V Shipley International Inc, The Parouth]61 where the Court of Ap

peal held that the proper law governed the issue of whether there was a binding
contract between the parties.

It has been pointed out that the strict application of the proper law rule to deter
mine whether a party has consented could lead to injustice in some cases.162 In
particular, the effect of silence in the formation of the contract may create difficul
ties. In some countries, an offeree may, in certain circumstances, be taken to

have accepted an offer by conduct, of which an eloquent silence may form part.
Were the proper law of the contract to maintain such a rule, it would often be
unfair to hold that the offeree was bound by his silence per se.x6i It appears log
ical, therefore, that the significance of silence should be assessed by reference
to the law of the country where the affected party is habitually resident, rather
than by the proper law objectively determined.164
l,9Some authors emphasise that it is the putative proper law objectively determined which
should apply, as opposed to the law chosen by the parties. See Cheshire n 31 475; Kahn
n 111 147 and Forsyth n 20 285. But cf arts 8(1) of the Rome Convention and 10(1)
of the 1985 Hague Sales Convention, which refer to the proper law including the law
chosen by the parties.
1601 >61 111 LJ 519.
1611982 2 Lloyd's Rep 351 (CA). In this case, the plaintiff sought leave to serve a writ out
of the jurisdiction on the basis that English.law governed the contract. The defendant
denied that a contract had ever been concluded. The plaintiff alleged that the terms
of the contract were evidenced by a telex which provided for arbitration of disputes
in London. In order to consider whether the discretion should be exercised to allow
service out of the jurisdiction, the Court of Appeal had to assess the links of the
tion with England, including the question of the proper law.
l62Dicey & Morris n 32 1198 and Forsyth n 20 285.
163Article 18(1) of the 1980 UN Sales Convention expressly requires a statement or

conduct of the offeree indicating assent to an offer, in order for the acceptance
valid. Silence or inactivity does not in itself amount to acceptance.
""Plender n 5 163 cites a decision of the Bundesgerichtshof in the Kitchen Furnitur
BGH 22 September 1971 BGHZ 57. A German manufacturer of kitchen furniture
a distributorship agreement with a French dealer. Upon receipt of several purchase o
for equipment which were periodically placed by the French dealer, the Germ
202
XXVI CILSA 1993
This approach has found support in article 8(2) of the Rome Convention, in term
of which a party may rely on the law of the country in which he has his habitual
residence to determine that he did not consent if it appears from the circu
stances that it would not be reasonable to determine the effect of his conduct
in accordance with the putative proper law.165

The 1985 Hague Convention contains a similar provision in article 10(3). To avoid
being bound by rules on passivity unknown to him, a party may rely on his own
law to show that he did not consent to the contract or any of its terms, if it would
not be reasonable to determine that issue by the proper law of the contract.166
Capacity
Capacity to enter into a contract may be considered an incident of a person s
status, and therefore subject to his personal law, or a factor pertaining to the
validity of the contract falling under the sphere of the proper law.
In England, the law that governs capacity to enter into commercial contracts is
a matter of speculation as far as the English authorities are concerned'.16"" It is
clear, however, that the choice lies between three possible sets of rules: the lex
loci contractus, the law of the domicile and the proper law.
The application of the lex loci contractus was relied upon in the past. In an old
case, Male v Roberts168 it was indicated that capacity should be governed by the
law of the place where the contract was made, although it was later stated by
manufacturer invariably sent a written confirmation. Such document contained the
manufacturer's standard conditions, which included a clause submitting any dispute

to the jurisdiction of the German courts. On litigation, the court found that it was for
French law, as the law of the habitual residence of the silent party, to determine whether
the choice of jurisdiction clause had been accepted.
16,The authors of the Giuliano-Lagarde Report explain that this provision is designed inter
alia to solve the problem of the implications of silence by one party as to the forma
tion of the contract. Moreover, they observe that the application of art 8(2) can result
in a decision releasing a party who would have been bound pursuant to art 8(1) (puta
tive proper law) but can never produce the opposite result of holding that a contract
exists where such contract is non-existent by its proper law; n 17 (par A5.55) 274.
l66In terms of art 10(1) issues concerning the existence and material validity of the con
sent of the parties as to the choice of the applicable law are determined, where the
choice satisfies the requirements of article 7 (freedom of choice), by the law chosen.
If under that law the choice is invalid, the law governing the contract is determined
by article 8 (absence of choice). Article 10(3) adds that a party may rely on the law
of the state where he has his place of business to establish that he did not consent to
the choice of law, to the contract itself, or to any term thereof, if, in the circumstances,
it is not reasonable to determine that issue under the law specified in the preceding
paragraphs.
"^Cheshire & North n 31 480.
1681790 3 Esp 163. In that case the circumstances were that a young Englishman, living
in Edinburgh, induced a friend to lend him money to pay a pre-existing debt. The lender
subsequently sued him for repayment, and he pleaded that being English, he was a minor
according to English law. This contention was rejected by the court, which held that
the law of the place of contracting ie Scottish law, applied.
203
the Court of Appeal in Sottomayor v De Barros169 that the general and well
recognised rule for all contracts was that the personal capacity to enter into any
contract is to be decided by the law of the domicile.

However, most of the cases where the domiciliary law was upheld concerned
capacity to marry or to enter into a marriage settlement, and could not, there
fore, be extended to the wider domain of international commercial contracts.

This was clearly expressed by Lord Greene in Baindail v Baindail170 in the fol
lowing terms
In the case of infants where different countries have different laws it certainly is
the view of high authority here that capacity to enter in England into an ordinary
commercial contract is determined not by the law of the domicile but by the lex
loci.^x
Both the law of the domicile and the law of the place of contracting have been
criticised. The main argument against the application of the lex loci is that there
are many commercial contracts in which the place of contracting has no special
significance. The concept of the parties together in the same room is not neces
sarily typical today. In the international commercial world, countless business

contracts are made by correspondence, by telex, by telephone, by electronic
mail, from country to country. It is not an easy task to determine where such
contracts have been concluded.n2
Similar difficulties arise with regard to the domiciliary law, in view of the fac
that it would often lead to inconvenience and injustice if the validity of an ord
nary consumer sales contract made in one country were allowed to depend
the law of the foreign domicile of one party with which the other party could
not be expected to be familiar. On the other hand, it has been argued that capac
ity conferred by the law of the domicile should not be invalidated by the prop
law, and, if the person is capable in terms of his personal law, the contract shoul
be valid.173
More recently, the application of the proper law in an objective sense has been
advocated by most authors.174 According to this view, the criterion for deter
mining the proper law should be exclusively the connection of the contract with
i69(No 1) 1877 3 PO 1 (CA).

I701946122 (CA).
'"'At 136.
r2Diamond n 36 270.
'"3Dicey & Morris at 1204 quote the following paragraph from the American Restatement:
'if the state of a person's domicile has chosen to give him capacity to contract, or in
other words has determined that he is not in need of protection which a rule of inca
pacity would bring, there can usually be little reason why the local law of some other
state should be applied to give him this protection and to declare the contract invalid
to the disappointment of the parties' expectations'.

r~*Rule 182 Dicey & Morris n 32 1202-1203. The application of the proper law doctrine
as governed by the intention of the parties (subjective formulation) would mean in prac
tice that a party could, by agreeing to the choice of a system of law as the proper law
of the contract, confer contractual capacity upon himself.
204
XXVI CILSA 1993
a given system of law.1 ' There is, however, a lack of English judicial authority
on this point.176
Thus, the law governing capacity to enter into a commercial contract seems, as
yet, to be unsettled in England. Since no single connecting factor appears to be
adequate for all cases involving contractual capacity, some authors believe that
English courts will adhere to the lex loci rule, subject to exceptions in non
commercial contracts and transfers of immovable property, where the lex
domicilii and the lex rei sitae respectively, would apply.'"7
In South Africa, a similar choice between the law of the domicile and the law
of the place of contracting has been raised, and the decided cases have not set
tled the matter conclusive ly.178
In Hulscher v Voorschotkas voor Zuid Afrika1 9 the court held that the ques
tion of capacity was to be governed by Dutch law, which was the law of the
domicile. But since the contract had also been concluded in the Netherlands,
the court did not have to decide on the application of one law to the exclusion
of the other. The question thus remained open.
Later on, in Kent v Salmon,180 Smith J said that there were strong grounds for
holding that in ordinary commercial contracts the contractual capacity of par

ties was to be decided, not by the law of the domicile, but by the law of the
place where the contract was made. Forsyth thinks that in this case the court
adopted a dual approach, and distinguished between the status itself - which
is determined by the law of the domicile - and the incidents thereof, which
are determined by the lex loci.181
The application of the proper law for questions of contractual capacity seems
not to have been raised as vigorously in South Africa as in England. Nevertheless,
|7,This would provide for a flexible system which would enable the court, for example,
to apply the lex situs where it is the proper law concerning land, and the lex loci con
tractus whenever it is the system of law which has the closest connection with the
contract. Similarly, if the contract is valid according to the proper law, but invalid ac
cording to the law of a party's domicile, the case for applying the former would be
very strong.
r6Cheshire & North cite the Canadian decision in Charron v Montreal Trust Co 1958
15 DLR (2d) 240 as supporting the objective proper law rule.
'^Morris n 74 403
1_sKahn n 111 127 referring to the old Roman-Dutch authorities.
r91908 TS 542. The case concerned a money loan contracted in the Netherlands to a
minor domiciled there; when sued for repayment, the minor raised her incapacity.
1 so 1910 TPD 637 at 639. The case concerned the contractual capacity of married women.
A Transvaal shopkeeper sued a married woman for payment of goods sold to her without
the assistance of her husband. On appeal, the court decided that the law of the place
of contracting, ie South African law, applied. But since the marriage had been entered
into in England and the capacity of a wife under English law differed from that of a
wife under South African law, the judge translated her capacity in English law into terms
of South African law. In the end, the court decided that she had acted beyond her con
tractual capacity, and the storekeeper was unsuccessful.
18ln 20 282.
205
Kahn suggests, de lege ferenda, that a party should, in general, be held capable
of concluding a commercial contract (relating to movables) if the person has ca
pacity under either the domiciliary law, the law of the place of contracting or
the proper law objectively determined.182
The two Hague Sales Conventions and the Rome Convention exclude capacity
from their scope of application.183 The lex fori, therefore, may apply its own
rules relating to capacity to contract. In the case of the Rome Convention, the
application of the forum's rules are subject to article 11 of the convention, which
attempts to deal with the question of capacity in a limited context. As the Giuliano
Lagarde Report states, this provision intends to protect a party who, in good faith,
believes himself to be contracting with a person of full capacity, and who, after
the contract has been made, is confronted by the incapacity of the other
party.184
The effect of the provision is that where two persons in one country, of whom
one is a natural person with capacity under that law, enter into a contract, then
the natural person cannot rely on an incapacity imposed on him by the law of another
country, ie his personal law, unless the other contracting party knew of the inca
pacity or his lack of knowledge was a result of negligence. Although limited in scope,
this rule gives a solution which favours validity of the contract.185
Illegality
In determining the intrinsic or material validity of a contract, it is not possible
to refer exclusively to the proper law as the governing law. It may be necessary
in addition to take account of other legal systems.186 The reason for this may
be found in the modern phenomenon of state intervention in contractual trans
actions, which is reflected in the proliferation of imperative rules enacted by states
for the fulfilment of certain social and economic policies. Since the late nineteenth
century, states have in general become more interested in distinguishing between
different types of contracts and subjecting them to specific controls: restrictions
on the import and export of certain goods, exchange control regulations, laws
for the protection of the cultural heritage or of vital economic interests, trade
embargoes and antitrust legislation are but a few examples of state regulations
which may affect international sale contracts.
In English law, it has become widely accepted that when such mandatory rules
182n 111 128.
l83This was, to a large extent, a result of the difference existing in civil law and common
law traditions, which classify capacity as an incidence of personal status and as a con
tractual issue respectively; art 5, 1955 and 1985 Hague Sales Convention. In terms of
art 1 (2)(a) of the Rome Convention, questions involving the status or legal capacity of
natural persons are excluded, without prejudice to article 11.

184Report n 17 (par A5.69) 282.
185See North n 19 51.
18<5Cheshire & North n 31 482.
206
XXVI CILSA 1993
constitute part of the proper law, may be taken into account to the extent that
they affect the contractual relationship.18^
Far more difficult conceptual and practical problems are caused, however, by
the existence of such international mandatory rules in the laws of interested states
other than the lex fori or the proper law. As seen earlier, article 7(1) of the Rome
Convention provides for the application, under certain circumstances, of inter

national mandatory rules of third states.188
In some cases, the application of a third country s law is made easier by the im
plementation of an international agreement to that effect. The International Mone
tary Fund Agreement,189 for example, provides that contracts concluded in vio
lation of exchange control regulations of a member state shall be unenforceable
in the territory of other member states.
English courts have, on several occasions, refused to enforce a contract which

was illegal in terms of the law of the place of performance, although valid by
the proper law. Two cases are frequently cited in this regard.
In Ralli Bros v Compaia Naviera Sota y Aznar90 an English firm chartered a

Spanish ship to transport a cargo of jute from Calcutta to Barcelona, at a rate
exceeding the maximum permitted by Spanish law. The shipowners sued in En
gland for the unpaid balance of the freight. The court said
Where a contract requires an act to be performed in a foreign country, it is, in the
absence of very special circumstances, an implied term of the continuing validity
of such a provision that the act to be done in the foreign country shall not be illegal
by the law of that country.
Furthermore, in Regazzoni v KC Sethia,w the court refused to enforce a con

tract for the sale of Indian jute bags destined for South Africa because Indian
law prohibited such exports to that particular destination.192
It has been pointed out that these cases, although dealing with illegality in terms
of the law of the place of performance, cannot be taken to represent the adoption
l8_Graveson n 78 434 refers to two cases where the House of Lords upheld foreign ex
change control regulations of the proper law prohibiting the delivery of securities
without the consent of a nominated foreign authority: Kahler v Midland Bank Ltd 1950
AC 24 and Zivnostenska Banka National Corporation v Frankman 1950 AC 57.
188See supra. In two recent foreign cases the application of this rule was considered. The
first is a German Federal Court decision of 22 June 1972, BGHZ 59 which dealt with
the protection of cultural property, and the other is Compagnie Europene des Petroles
5/1 v Sensor Nederland BV ( 1983) 22 International Legal Materials 66 which dealt with
the effect of international trade embargoes.
189Bretton Woods Agreements Act 1945; Bretton Woods Agreements Orders (SR & O 1946
No 36) article 8 s 2B of the Schedule.
1901920 2 KB 287.
1911958 AC 301
192According to the terms of the contract the place of delivery was Italy. No illegality was
involved in that performance. However, it was the intention of the parties that the jute
bags should be transhipped or resold in Italy to a South African purchaser. The court
found that it was this ultimate destination which constituted a breach of Indian law.
207
of a provision similar to article 7(1) of the Rome Convention in English law.

Rather, the position seems to be that such illegality is only fatal if the contract
is governed by English law, as was the case in both disputes, but may not be
so if the contract is governed by foreign law.193 Thus, in the first case, it was
the domestic rules dealing with impossibility of performance which applied not private international law rules - while in the second case public policy was
the principle used by the court to reject the performance of the contract as
invalid.194
The position in South Africa seems to be equally uncertain. In particular, there

are no cases where a situation similar to that contemplated in article 7(1) of the
Rome Convention has been considered.195
In general, it may be stated that the lex loci solutionis governs performance and
its legality.196 Two cases may illustrate the issue.
In Bishop & Others v Conrath & Another97 it was decided that an agreemen
to enter into and perform a contract in a country where the conclusion of such
contract is not illegal is valid, although the contract and its performance are ille
gal in the place of contracting.
In Cargo Motor Corporation Ltd v Tofalos Transport Ltdw the proper law which coincided with the lex loci solutionis - was applied in order to rejec
the contention that an agreement was invalid because it violated the exchang
control regulations of a foreign country. Margo J decided that the contract was
enforceable in South Africa, where it was to be performed, irrespective of any
prohibitions under the Zambian exchange control laws.

In view of the absence of judicial authority with regard to mandatory rules of
third countries claiming application to an international commercial transaction,
it has been suggested that the internal ordre public of South Africa as the le
fori should ultimately decide whether or not to implement or consider impera
tive rules of other legal systems connected with the transaction.199
193Cheshire points out that no case has arisen requiring the court to consider the effec
of illegality at the foreign place of performance upon a contract, the proper law of which
is the law of yet another foreign country (at 488). Similarly, Dicey & Morris state tha
it is doubtful and highly controversial whether, according to the English conflict rules,
illegality according to the lex loci solutionis as such would have any effect on the va
lidity or operation of a contract governed by foreign law and to be performed in
third country (at 1219).
19"*Morse n 77 147 with further references. See also Cheshire & North n 31 487-489.
195E Spiro 'Autonomy of the parties to a contract and the conflict of laws: Illegality' (1984
17 Comparative and Iriternational Law Journal of Southern Africa 203.

196dem-, see also Kahn n 111 149.
1971947 2 SA 800 (T). An agreement had been made in the Transvaal for the purchase o
a lottery ticket in Southern Rhodesia. The transaction was legal according to Rhodes
an law, but illegal in terms of a Transvaal statute which outlawed lotteries.The court
said that the lex fori ie T ransvaal law did not have extraterritorial effect in the present
case and therefore considered that the agreement was valid.

1981972 1 SA 186 (W).
'"Spiro n 195 208.
XXVI CILSA 1993
208
Formal validity
On grounds of justice and convenience, the locus regit actum rule of the place
of contracting governing the formal validity of contracts has been universally
recognised. It is essential that parties entering into a contract in a given country
are able to seek local legal advice on formalities to be observed for the conclu
sion of a particular contract.
Observance of local formalities is thus sufficient. Whether this is also imperative
is a question which has been debated in England, although most authors believe
there is neither justification, nor authority for the view that observance of the
local law is compulsory. Thus, it appears that compliance with either the lex loci
or the proper law suffices.200
In the particular case of commercial contracts, the importance of the place of

contracting has been greatly reduced by modern communications. Very frequent
ly, the place of contracting is not only fortuitous - as would be the case where
the contract is entered into after prolonged negotiations taking place in differ
ent countries - but may also be uncertain.201 In such cases, the interests of in
ternational trade are best served if a facultative approach is adopted, in terms
of which the compliance with formal requirements of either the lex loci or the
proper law suffices to create a valid contract. In this way, fewer commercial con
tracts will eventually fail on formal grounds.
This is also the position advocated by most scholars in South Africa. In the ab
sence of local decisions on choice of law rules for formalities in commercial con
tracts, it has been suggested that the law should 'take a generous view'-02 and
allow the parties to conclude a contract for the sale of goods which conforms
with the formalities of the place of contracting or of the proper law. Support
for this approach was given in a decision of the Appellate Division in Ex parte
Spinazze,20i although the particular case was concerned with the formal validi
ty of an antenuptial contract.
The Rome Convention adopts a method which favours validity of contracts on

formal grounds. As a general principle, article 9 takes as its starting point the
view that as far as possible a contract should not be invalidated because of a for
mal defect. Accordingly, the convention refers to a series of different laws to
test the formal validity of contracts.
In terms of article 9(1), where the contract is concluded between persons in the
20Cheshire & North n 31 479; similarly Dicey & Morris n 32 1210 and Forsyth n 30 284.
201The difficulties created by the existence of divergent solutions to problems of consent
have been mentioned earlier. This situation also affects formal validity, in that the lex
loci contractus of a given contract might depend on whether the expedition theory
or the reception theory of acceptance to an offer is adopted in the particular case. Dicey
& Morris n 32 1209.
202Kahn n 111 148; similarly Forsyth n 20 284.
203 1 98 5 3 SA 650 (A). Corbett J pronounced himself in favour of a facultative approach

which would hold a contract formally valid, if it complies with the formalities of either
the lex loci or the proper law.
209
same country it will be formally valid if it complies with the requirements of
the place of performance or the law governing the contract under the conven
tion. If the parties are in different countries, the contract is formally valid if it
satisfies the formal requirements of the law governing the contract or the law
of any of those countries.204 For these purposes, article 9(3) states that the rele
vant country is that where an agent acts, whenever the contract is concluded
by an agent.
These are the general principles. The convention then sets out special rules con
cerning consumer contracts, contracts relating to immovable property and acts
- intended to have legal effects - which relate to an existing contract.205

Finally, the 1985 Hague Sales Convention follows the same approach, in that
it contains rules similar to those of the Rome Convention.206 The 1955 Sales
Convention excludes formal validity from its sphere of application.

CONCLUSION
Solutions to the legal problems of international trade in general and in
al sales in particular have been developing through various channels, m
bly international mercantile custom, arbitration, and the formulat
ied in standard contracts and uniform laws. In the last decades major ef
been made for the international unification of important areas of law,
ly in the field of international sale of goods. The culmination of such
the 1980 United Nations Sales Convention presently in force, whos
provide uniform rules for the international sale of goods which are be
to the effective needs of international trade than domestic sales laws.
Yet, the attempt to reach unification at a universal level encounters object
limits. No convention of this kind covers all aspects of the law relating to sale
Some categories of sales - such as consumer sales - are expressly exclude
Even with regard to ordinary sales contracts, aspects relating to the validity o
the contract or of any of its provisions are similarly excluded from the Sales
vention.
In these circumstances, it will be necessary to rely on the general aspects of con

tract law as they are found in national legislation, by application of the relevant
choice of law rules. In this area, too, attempts have been made to achieve a degree
of harmonisation. The two Hague Sales Conventions and the Rome Convention
are the most notable examples.
Most conventions on private international law rules of contract apply the proper
law doctrine, in terms of which priority is given to the principle of the parties'
freedom to choose the applicable law. In the absence of choice, the court
204Art 9(2). The application of the law of either party avoids the issue of determining the
lex loci contractus, an aspect which may be problematic. See Report n 17 (par A5.61) 278.
205Art 9 paras 4, 5 & 6.
206Art 11.
210
XXVI CILSA 1993
determines the governing law by reference to the system of law with which the
contract has its closest and more real connection. In most cases, this leads to
the application of the law of the seller.
However, there is a visible tendency to recognise the increasingly active role

played by the state in the regulation of commercial transactions. Measures adopted
by states to control private transactions and ensure their fairness at the private
law level, and particularly those reflecting fundamental economic and social poli
cies as expressed in public law may have an impact on contracts for the interna
tional sale of goods.

The much debated article 7 of the Rome Convention, as a matter of principle,
authorises the the court to apply not only mandatory rules of the lex fori or the
applicable law, but also mandatory rules of a third country interested in the trans
action. Under a functional approach, the convention empowers the judge to en

gage in a policy analysis before applying the mandatory rules of a third state which
is neither the lex fori nor the applicable law. In this way, priority is given to
a result-selecting method to the choice of law problem which leads to the selec
tion of the rule on its merits. But even though such an approach arguably ac
complishes a more just result, it has as its major drawback an increasing uncer
tainty as to the applicable law. In an area such as international sales, where legal
certainty and the protection of the parties' legitimate expectations are of para
mount importance, the application of such a rule is likely to create difficulties,
since it is an issue which arbitrators and courts are increasingly faced with and
which standard proper law techniques do not resolve.

In order to minimise this uncertainty, some form of guideline as to what types
of mandatory rules are to be recognised in international situations, or rather, how
mandatory rules problems are to be resolved is needed. Apart from rules laid
down in terms of international case law dealing with the subject, another way
in which this could be done is through the adoption of internationally accepted
standards, such as those presently operative within the ambit of the internation
al carriage of goods by sea and the exchange control regulations in terms of the
International Monetary Fund (Bretton Woods) Agreement.20"
- See supra nn 60 and 189.

Essentials of A Valid Contract in Conflict of Laws

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Essentials of A Valid Contract in Conflict of Laws

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Institute of Foreign and Comparative Law

Prvate international law rules relating

International commerce based on freely negotiated contracts is the driv

of international economic cooperation and prosperity. Ours is an

International trade involves complications not found in purely dom

actions. Apart from the diversity to be found in national laws governin

tional commercial contracts, differences in language, climate and s

cal, and business customs constitute further barriers to international tra

In order to minimise these obstacles a degree of uniformity in the law

and further development of international commerce.1

At the heart of international trade is the international sales contract, a

of rules best suited to their particular needs. In this process, partie

my in contractual relations is of primary importance in the context of

mate expectations of parties to such contracts.2

'Abogada (UBA Argentina).

Validity of international sales contracts

An international contract must be governed by a given system of law. The pur

is possible that a factual situation containing foreign elements may be decided

The inconvenience arising out of the national character of choice-of-law rules

XXVI CILSA 1993

In trying to achieve the harmonisation of the law applicable to internation

mercial sales, these two methods complement one another.7

Scope of the article

contracts, ie formalities, contractual capacity, existence of agreement and ille

Although the demarcation between international and domestic sale

uisite for the operation of private international law rules, no clear de

of law recognised by civilized nations'.9

6United Nations Convention on Contracts for the International Sale of Goo

Validity of international sales contracts

In general, it seems to be fairly widely accepted that an international situation

plication of its provisions. The 1980 UN Sales Convention applies to contracts

an otherwise domestic contract into an international one.15 Conversely, the

or of the contract is to be taken into consideration in determining the application of

13Art 1 ULIS and ULF.

XXVI CILSA 1993

a stipulation by the parties as to the applicable law, even if accompanied by a

choice of court or arbitration.16

in one State'.17 Thus, the question whether a contract is governed by English

force.18 Similarly, once an otherwise purely domestic contract contains a choi

plicable to Sales' (1987) 51 RabelsZ 62-63.

try. See also infra.

Validity of international sales contracts

THE APPLICABLE LAW

A contract is created and exists within a given system of law which

Amin Rasheed Shipping Corporation v Kuwait Insurance Co21 w

Dlocalisation of contracts and the applicable law

tional arbitration as a means of international commercial adjudication and the

tion is to formulate a regime which is transnational or universal in its applica

20CF Forsyth Private international law (2ed 1990) 263.

22Per Lord Diplock at 65.

'The lex mercatoria in international commercial arbitration' (1985) 34 International

XXVI CILSA 1993

As long as no dispute arises between the parties, commercial transactions are

is applicable to the contract as a whole. However ascertained, it consists of a

African law' Huldigingsbundel Paul van Warmelo (1984) 38-67.

Validity of international sales contracts

law.32 Furthermore, it is up to the parties to agree that different aspects of the

Contractual dpeage allows parties to take full advantage of their autonomy

tract. Perhaps, as a result of this, dpeage as part of an express choice-of-law

of the whole contract - with the local law of a country or state.38

3-Report nl7 (para A5.26) 259-260.

XXVI CILSA 1993

Similarly, there is no agreement among legal commentators on whether it is desira